THE CONFERENCE Board’s annual productivity brief, released today, is the most comprehensive of its kind, covering 123 economies representing 99 per cent of global output.
It reveals widely contrasting performances in 2009 when the global economy contracted by 0.4 per cent. This masked radically different results in the new and old worlds. Two examples of the former, China and India, grew by 6 to 8 per cent.
However, contraction was the order of the day pretty much everywhere else.
Britain was particularly hard hit by the housing slowdown and its reliance on financial services – it contracted by an estimated 4.8 per cent. The euro zone was not far behind, recording a 4.1 per cent drop in output. This was led by Germany, which is a major exporter of heavy duty goods and suffered accordingly, contracting by 5 per cent.
Peripheral euro area countries suffered as housing markets collapsed. Spain and Ireland recorded estimated contractions of 3.7 per cent and 7.6 per cent, respectively.
The US fared surprisingly well, even though much of the global trouble started there. However, toxic US subprime mortgages were exported widely, notably to Europe, and the situation at home was helped by the US authorities adopting very interventionist monetary and fiscal policies. As a result, US GDP contracted by a relatively modest 2.5 per cent.
The good news is that things will be much better this year when global growth is forecast at 3.4 per cent and only seven of the 39 core countries in the study will contract. Unfortunately, Ireland will be one of them.
The other bad news is that it will be a jobless recovery as renewed growth will be driven by strong productivity with employment forecast to contract again in the advanced countries.
Output per hour, or productivity, fell 1 per cent in the euro area, whereas US productivity growth remained remarkably strong, growing by 2.5 per cent in 2009.
The difference lies in the approach adopted. According to Bart van Ark, chief economist of the Conference Board: “US employers reacted much more strongly to the recession than their European counterparts in terms of cutting jobs and hours.”
Jobs were shed at nearly twice the European rate and average hours worked also fell, giving a fall in total hours worked of more than 5 per cent. Germany, in contrast, introduced job subsidies to encourage firms to hold on to workers in the hope that things would get better. Labour was underutilised and productivity suffered, contracting by 2.2 per cent on top of a 2.8 per cent fall in employment. The euro area experience was similar, albeit more moderate.
Ireland and Spain posted strong productivity gains last year. However, this reflected the nature of their recessions which saw job losses concentrated in less-productive sectors like construction and tourism. Only Latvia had a bigger fall in employment than us.
Emerging countries like China and India made huge productivity gains; in fact, their workforces were relatively static and nearly all of their growth was productivity based.
As is usual with international studies of this kind, the report is based on GDP which can lead to distortions. A table on average per capita income in 2009 has Ireland in fourth position out of 39. This does not feel right.
GNP, a more appropriate alternative, measures income accruing to Irish residents only whereas GDP includes multinational profits, and is about 20 per cent higher than GNP.
If GNP were substituted instead of GDP, our relative position in the league would fall to 17th, with only five EU15 countries below us – Spain, France, Greece, Italy and Portugal.
